The Times of India, citing an unnamed source within CGS, said rising costs had driven Citigroup’s decision to dispose of the captive operation. Financial services giant Citigroup last month announced it was cutting 17,000 jobs from its global operations as part of a program aimed at reducing costs by $10bn over the next three years.
CGS, which was known as E-Serve International until last November, provides transaction processing, contact center, and data imaging services and applications. For the 12 months to the end of March 2006, the operation reported net profit of INR 713.6m ($17.7m) on revenue of INR 6.1bn ($151.6m).
The news that CGS could be up for sale comes in the same week that Genpact, India’s largest BPO vendor and former captive operation of General Electric, filed for an IPO on the New York stock exchange. General Electric has retained a 40% stake in Genpact, with the remainder of the company owned by private equity firms Oak Hill Capital and General Atlantic.
Our View
If, as press reports suggest, Citigroup does decide to put its BPO captive operation on the block, there should be no shortage of suitors. One name that immediately springs to mind is EDS, which has made no secret of its desire to make major acquisitions over the next few years.
In February, EDS chief executive Mike Jordan said the company would spend between $1.5bn and $2bn annually on acquisitions for the foreseeable future, adding that the takeovers would be focused on key vertical markets such as financial services. Add in a strong presence in India and CGS would appear to be a good fit for the US services giant.
Another major vendor that could be interested in CGS is Capgemini. The company recently boosted its offshore presence with the acquisition of Kanbay, another financial services specialist. Capgemini is also looking to build up its BPO operation, which currently boasts a headcount of about 5,500, and has not ruled out making an acquisition in the space before the end of the year.
